European Commission´s forecasts are far worse than those of Madrid

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LONDON (ShareCast) - Although the European Commission (EC) is not scheduled to report its economic forecasts until tomorrow, El País has got its hands on a draft document which reveals that expectations are that Spain will not return to growth until at least 2014.

Specifically, the Commission expects the Spanish economy to register a 1.6% contraction this year, followed by another 1.5% drop in output in 2013. Next (Berlin: NXG.BE - news) year´s outcome is significantly worse than the -0.5% fall which had been foreseen by the government in Madrid.

The EC also believes that the return to growth in 2014 will be by only 0.5%, far below Madrid's own prediction for an expansion of 1.2%.

That explains why the Commission has far less optimistic forecasts for Spain´s finances than the country´s Prime Minister, Mariano Rajoy, as he struggles to bring his country's finances under control, not to mention those of regions such as Catalonia.

Should all of the aforementioned come to pass then the central government and its feisty regions may have little choice but to finally embrace a bail-out -with lots of strings attached- from Brussels.

The European Union´s executive branch sees the budget deficit at 8% of GDP this year, 6% in 2013 and 5.8% in 2014, compared to the government's predictions of 7.3%, 4.5% and 2.8%, respectively.

Although risk premiums on Spanish bonds have dropped back from record highs, markets have been on edge as the government fails to send a clear signal on whether or not it will ask for a bailout. The country has already received the green light from the Eurozone to ask for up to €100bn in assistance for the financial sector as Spanish banks -hit hard by the bursting of the housing bubble- attempt to restructure.

JM